Revenue appeals dismissed, CIT(A)'s decisions upheld. Pole rent interest compensatory, modems get 60% depreciation.

The Tribunal dismissed both appeals of the Revenue, confirming the CIT(A)'s decisions. The interest for delayed payment of pole rent was considered compensatory and deductible, and modems were allowed 60% depreciation. The judgments were pronounced on 4th March 2020.

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Issues Involved:
1. Admissibility of interest paid for delayed payment of pole rental charges.
2. Difference between liability of interest due and penal interest.
3. Allowability of depreciation on modems at 60%.

Issue-wise Detailed Analysis:

1. Admissibility of Interest Paid for Delayed Payment of Pole Rental Charges:

The first issue concerns the admissibility of interest paid by the assessee for the delayed payment of pole rental charges to KSEB. The Assessing Officer disallowed the interest expense of Rs. 2,37,71,066, considering it a prior period expense and penal in nature. The CIT(A) observed that the dispute over pole rent was settled by the High Court, and the interest charged was compensatory, not penal. The CIT(A) deleted the addition, concluding that the interest liability accrued during the AY 2007-08. The Tribunal upheld the CIT(A)'s decision, stating that the interest was compensatory and deductible under the mercantile system of accounting.

2. Difference Between Liability of Interest Due and Penal Interest:

The second issue addresses whether the interest for delayed payment is penal or compensatory. The Revenue argued that the interest was penal. The Tribunal, however, noted that the interest was computed at a stipulated percentage and was compensatory. Reliance was placed on Supreme Court judgments, including Prakash Cotton Mills vs. CIT and Mahalakshmi Sugar Mills Co. vs. CIT, which held that interest for delayed payment of statutory dues is allowable under Section 37(1) of the Income Tax Act. The Tribunal dismissed the Revenue's appeal, affirming that the interest was compensatory.

3. Allowability of Depreciation on Modems at 60%:

The third issue pertains to the rate of depreciation allowable on modems. The Assessing Officer restricted depreciation to 15%, while the assessee claimed 60%. The CIT(A) allowed 60% depreciation, relying on the ITAT Hyderabad decision in Ushodaya Enterprises Ltd., which held that modems, as integral parts of computers, are eligible for higher depreciation. The Tribunal upheld the CIT(A)'s decision, citing various legal precedents, including the Special Bench of ITAT Mumbai in Dy.CIT vs. Data Craft India Ltd., which supported higher depreciation for computer peripherals like modems.

Conclusion:

The Tribunal dismissed both appeals of the Revenue, confirming the CIT(A)'s decisions on all issues. The interest for delayed payment of pole rent was deemed compensatory and deductible, and modems were eligible for 60% depreciation. The judgments were pronounced in the open court on 4th March 2020.

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